This lesson explores the role of Big Data in augmenting traditional fundamental analyses, as well as some of the tools offered by IBKR that support socially responsible investing.
In our previous lessons, we highlighted how many investors are likely to find that conducting fundamental analysis on ESG-related issues can be quite a daunting task – especially given the massive amounts of variables that may be considered relevant.
To address this concern, many companies and organizations have been working to establish more advanced, technological tools and scoring systems to aid in the effort.
Advanced Technology: AI & Big Data
For example, certain companies may employ artificial intelligence, with sentiment analysis algorithms, and natural language processing, to help arrive at data that may assist in ESG investing analysis.
S&P Global, for instance, recently noted that ESG investing could become more methodical and accessible with AI technologies. With this in mind, the company recently said the Dow Jones Sustainability Index, the original index of sustainable investments from S&P Dow Jones Indices, aims to use AI to speed up analyses and augment traditional research.
Many researchers also agree that using Big Data as a driving tool for conducting fundamental analysis is likely to reduce issues in corporate disclosures, such as timeliness, accuracy and adherence to stated policies – especially since ESG-related information lacks the same set of standards and generally-accepted principles as applied to financial data.
Moreover, certain studies indicate that there appears to be a correlation between media sentiment about a company and its stock’s performance. According to data services provider Refinitiv, for example, stocks tend to outperform after being associated with media sentiment that is high, and when sentiment falls, it may be a warning sign that prices are also likely to decline.
To this end, through its MarketPsych Analytics, Refinitiv produces data by distilling news and social media content through a curated language framework, which not only measures different emotions like optimism, confusion, and urgency, but also financial language and specific topics, such as interest rates and mergers.
Meanwhile, FactSet-owned Truvalue Labs – another data service provider in the ESG space – can access more than a hundred thousand online sources with unstructured text, such as social media posts. And besides dynamic web feeds, Truvalue Labs’ internal ESG analysts also identify specialized sources to find ESG data, with the company also able to draw on more than two thousand sources residing behind paywalls.
In fact, the socially responsible investing (SRI) data behind IBKR’s Impact Dashboard is fueled by Refinitiv and Truvalue Labs, who use the unstructured data they collect to compute scores within common frameworks, including ESG and SASB, among others.
Again, the scores calculated by Refinitiv and Truvalue Labs are derived from thousands of company and non-company resources, including annual reports, regulatory filings, trade blogs, industry publications and social media.
IBKR’s proprietary dashboard technology overlays Refinitiv’s and Truvalue Labs’ SRI data, and incorporates investors’ value preferences and portfolio holdings, to provide investors with a single Portfolio Impact Score letter grade.
You can see how the Impact Dashboard works via the link to a short video below, but in brief, the tool supports socially responsible and impact investing by enabling investors to evaluate, and invest in companies, whose business principles align with their own personal values.
The Impact Dashboard essentially personalizes responsible investing by enabling investors to select those values they deem important that companies support, as well as the practices they want companies to avoid.
However, this tool is just one of the ways investors can incorporate ESG investing analyses into their decision-making processes.
IBKR has also incorporated tools within its Trader Workstation online trading platform environment, for example, to help investors find assets offered by companies whose values are better aligned with theirs.
Trader Workstation users can now add an Impact Effect column to Watchlists and other tools, for instance, which displays green thumbs-up, and red thumbs-down, icons to identify potential buy and sell investments that align or conflict with their selected impact values – such as clean air, consumer safety, and gender and racial equality, among others.
The Impact Flag column may also be added to Watchlists to see which companies are flagged for engaging in practices tagged as unacceptable, including greenhouse gas emissions, weapons and gun manufacturers, hazardous waste, animal testing, and high-water usage, among others.
Also, the Impact tab in IBKR’s Fundamentals Explorer offers signals for whether a company aligns with stated Impact values.
Indeed, IBKR has integrated ESG data to help inform investors’ decision-making into several of its platforms, including PortfolioAnalyst, as well as its Model Marketplace, and at Interactive Advisors – its robo-advisor and investment management arm.
You can explore more about the Impact Dashboard and suite of ESG-related tools at IBKR in the links below, as well as learn more about how Refinitiv and Truvalue Labs collect and treat data.
More About IBKR’s Tools and Resources:
- IBKR Trader Workstation – ESG Scores
- IBKR Sustainable Investing
- IBKR Impact Dashboard & White Paper
- IBKR Fundamentals Explorer
- ESG Scores from Refinitiv
- At A Glance: Truvalue Labs’ Insight360 Data Feed
- Dynamic Materiality In The Time of COVID-19
- Truevalue Labs – ESG Research in the Information Age
Disclosure: Interactive Brokers
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